based on H. Minten et al. Nature Sustainability https://doi.org/10.1038/s41893-025-01618-5 (2025).

The policy problem

The European Union (EU) Carbon Border Adjustment Mechanism (CBAM) aims to prevent carbon leakage (the phenomenon where emissions reduction efforts in one region cause increased emissions elsewhere due to the relocation of carbon-intensive industries or shifts in production) by pricing the greenhouse gas (GHG) emissions embodied in imported goods. As the EU considers extending the CBAM to chemicals and plastics by 2030, key gaps in its current design could undermine its effectiveness and fairness. Fossil feedstocks and refinery products are currently excluded, leaving substantial upstream GHG emissions unaccounted for. The use of fallback default values — country-specific average emission intensities used when actual data is not reported — can distort accuracy, especially as they are based on broad EU Combined Nomenclature (CN) product groups. This may result in undercharging high-emissions producers and overcharging low-emissions ones, distorting incentives in favour of fossil-based pathways. Additionally, with free allocations under the EU emissions trading system being phased out by 2034, domestic producers will eventually face broader emissions coverage than importers under CBAM, creating an asymmetrical regulatory framework. If the CBAM is not adjusted to address these issues, it could lock in fossil-based production and weaken EU climate goals.

The findings

This study shows that the current CBAM design covers only 39–60% of GHG emissions from the production of ethylene and its polymer derivative, polyethylene (Fig. 1). The largest gaps in coverage arise from the exclusion of fossil feedstocks and refinery products, which are major upstream emission sources in petrochemical supply chains. In addition, with the use of country-average fallback default values, importers can avoid reporting emissions when it is not in their financial interest to do so. Grouping fallback values by broad CN product codes further obscures the variability within chemical categories, which results in inaccurate carbon pricing and distortion of incentives. Expanding the scope of the CBAM and refining the fallback value system would substantially improve emissions coverage and promote transparent reporting. However, the consequences of applying stricter rules must be weighed against diplomatic and practical considerations in international trade negotiations.

Fig. 1: Emissions coverage under current and improved EU CBAM designs.
figure 1

A value of 100% represents full alignment of the CBAM with actual cradle-to-border GHG emissions. CBAM designs differ in their sectoral scope and the stringency of fallback default values. The ‘baseline’ case assumes that primary data are always reported by all facilities, whereas the ‘self-profiting reporting behaviour’ case assumes that facilities report only when doing so lowers their reported emissions below fallback default values. Figure adapted from H. Minten et al. Nat. Sustain. https://doi.org/10.1038/s41893-025-01618-5 (2025), Springer Nature Limited.

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The study

This study applies CBAM design options to life-cycle assessment data from more than 4,400 global chemical production facilities to evaluate how well current and proposed CBAM designs capture supply-chain GHG emissions in the chemical sector. The analysis quantifies the share of emissions covered under each policy design, highlights critical coverage gaps, and identifies targeted adjustments that would improve the CBAM emissions coverage for chemicals and polymers. The focus is on upstream, high-emissions chemicals such as ethylene, which are foundational to many downstream products. Although this approach provides valuable insights into upstream supply-chain emissions, considerably greater complexity is expected in a CBAM extended to downstream products.